China to provide $2.5 billion loan to Pakistan

China has agreed to provide US $2.5 billion in loans to Pakistan to boost its depleting foreign exchange reserves. It will place $2.5 billion in deposits with Pakistan’s central bank viz. State Bank of Pakistan (SBP).The money is coming as part of Pakistan Government’s strategy to secure breathing space till time its macroeconomic stabilisation measures take effect.

With this, China’s contribution in this fiscal year alone will be around $4.5 billion. In July 2018, China deposited $2 billion with SBP. In past five years, China has emerged as Pakistan’s single largest saviour in times of economic crisis.

What is the issue?

Pakistan is struggling to maintain its foreign exchange (Forex) reserves and is nearly broke with drying up of foreign cash reserves and mounting external debt.

Its $8.12 billion reserves, which are below minimum level prescribed by International Monetary Fund (IMF) and World Bank (WB), are sufficient to cover only seven weeks of imports.

Due to this, WB, IMF and Asian Development Bank (ADB) are not providing loans or bailing out Pakistan for budget financing.